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A market rent review on a commercial property can be a real challenge to negotiate or establish, especially if the property is unique or special. Finding comparable rentals is the first challenge, getting the negotiation off the ground and achieving a result without the delays of arbitration is the next challenge.

So to help you as a property manager or landlord with your next market rent review, here are some ideas and concepts to explore.

1. Always read the lease before beginning a market review. Pay particular attention to the rent review clause and look for the review process issues and associated critical dates. Doing things the right way and properly giving tenant and landlord notices before critical dates is important to the market rent review process. Time is of the essence in many cases.
2. Inspect the property and lease for an up-to-date update and perspective on facility presentation and functionality. Look for improvements or challenges to the occupation. Look for anything that adds or detracts from current rent levels.
3. Make sure you have an up-to-date survey of the lease area and the size of the facility. Make sure the tenant is not trespassing or operating outside the boundaries of the lease or premises. Is the facility area correct, or have there been changes to the lease that need to be considered in this review that were not made in the last review?
4. Verify that the tenant complies with all the terms and conditions of the lease. Ask about non-compliance issues and recent rent payments. Get a copy of the latest rent bill so you know exactly how much the tenant is paying for the space today.
5. Please review the permitted use of premises in the lease as this will be relevant to comparable rentals and premises you wish to use as proof of market.
6. Get details of the current rent and understand if it is calculated gross, net or gross based on the base year. If the expenses impact the rent and make it a gross rent of any kind, then you must identify the value of the expenses so they can be removed from the gross rent amount. That simple process allows you to establish and compare net income to net income. It makes the comparable rental situation much easier to calculate and negotiate.
7. Look at the last time a rent review was conducted for your facility in question and find out on what basis it was done. Was it CPI, market, fixed increase or fixed amount? Were comparable rents used at the time and, if so, where did they come from? Look at those premises again now to see what changes comparable properties may have undergone.
8. If the tenant contributes to the expenses of the premises and does so in accordance with the terms of the lease, verify that the charges and payments are correct and up to date. Look for dispute issues or arrears.
9. Get details of the latest expense reconciliation for the property and the premises. Make sure that the conciliation has been carried out correctly and that no pending issue was left out of the process and analysis.
10. Look for premises in the general enclosure that can be considered comparable. Obtain details of the rent paid in each case, and then inspect comparable facilities. It is important to understand that the premises are located in similar circumstances as your subject property. You cannot use a comparable rent in your market without knowing that it is truly comparable.
11. Your analysis of comparable properties and rents will require that you know how those rents were established. If they were not established by the market rent review process, or were not created by a genuine new lease without a lease incentive, then they are not directly comparable. If you have to act or use a comparable market rent that was established with the help of a rental incentive (for example, a period without rent), then you must quantify the value of that incentive and take it from the rent achieved. A true market rent is an effective rent without a rental incentive to increase its value.
12. Market rent review negotiations are best started in writing to meet lease terms and critical dates, and then negotiated face-to-face with the tenant.
13. Both parties to the lease (landlord and tenant) must have an established bargaining range to work through and come to some kind of agreement. This helps the parties reach a common agreement instead of wasting valuable time and money on the arbitration and rental dispute process. It is often seen in the arbitration process that a property appraiser will set a final rent figure in the midst of demands set forth by the parties; the cost of that arbitration will largely absorb any advantage of the higher rent paid. Of course, there are other reasons to consider value when contesting and arbitrating market rent; a higher arbitrated rent may improve other rents at nearby premises on the same property, and therefore the overall value of the property.

These are the main issues to consider when managing a market rent on a commercial or retail investment property. Gather the facts before you begin, and then negotiate the rent review within the terms and dates of the lease.